Economic Activity Index (“GDB-EAI”)

February 2014

General Commentary – February 2014

The February 2014 EAI was 127.1, a 2.4% reduction compared to February 2013. Moreover, the FY2014 YTD (July- February) EAI showed a reduction of 3.8% with respect to the corresponding figure for FY2013.

Total non-farm payroll employment for February 2014 averaged 929,200, an annual increase of 0.1%, while FY2014 YTD total non-farm payroll employment showed a 1.9% decrease with respect to the corresponding figure for FY2013. During this month, total private employment increased by 1.5% y-o-y (10,300 jobs), while total public employment decreased by 3.7% y-o-y (9,300 jobs).

Electric power generation for February 2014 totaled 1,528.0 million kWh, an annual decrease of 2.2%. Electricity generation for FY2014 YTD was 3.6% less than during the same period of FY2013.

The preliminary number for gasoline consumption* in February 2014 was 80.5 million gallons, 6.4% below February 2013. The FY2014 YTD gasoline consumption number was 3.1% below the corresponding figure for FY2013.

Cement sales for February 2014 totaled 1.27 million bags, registering an annual reduction of 12.7%. Sales for FY2014 YTD were 15.6% below the figure for the same period of FY2013.

2

In February 2014, the GDB-EAI registered a 2.4% year-over-year (y-o-y) reduction (the

lowest since May 2013), after showing a 3.4% y-o-y decrease in January 2014.

* The monthly gasoline consumption is estimated by the GDB from the Treasury Department's monthly gasoline excise tax collections paid by importers

which are transferred to P.R. Highways and Transportation Authority. These collections fluctuate due to changes in inventories and purchases, which

do not necessarily reflect the actual monthly consumption reported by retailers.

3

• The GDB-EAI registered a 2.4% year-over-year reduction in February, after showing a 3.4% y-o-y decrease in

January 2014.

13

3.9

13

3.7

13

3.3

13

3.9

13

3.5

13

2.2

13

0.9

13

0.9

13

1.6

13

2.3

13

1.8

13

0.8

13

0.4

13

0.5

13

0.3

13

0.1

12

9.8

12

9.6

12

8.6

12

7.9

12

9.1

13

0.5

13

2.0

13

1.9

13

2.3

13

2.4

13

1.6

13

1.8

13

1.4

13

1.9

13

1.2

13

1.3

13

2.2

13

3.2

13

3.9

13

2.7

13

1.6

13

0.3

12

9.0

12

8.8

12

8.4

12

7.4

12

6.0

12

5.6

12

7.2

12

8.3

12

8.3

12

7.0

12

7.1

12

7.1

-5.8%

-5.0%

-4.0%

-3.1% -2.8%

-3.8%

-4.6% -4.1%

-3.5%

-2.3% -2.7%

-3.3%

-2.6% -2.4% -2.2%

-2.8% -2.7%

-1.9% -1.7% -2.4%

-1.9% -1.4%

0.1%

0.9% 1.5% 1.5%

1.0% 1.3% 1.2%

1.8% 2.0%

2.7% 2.4%

2.1%

1.4%

0.6%

-0.6%

-1.6% -2.0%

-2.3% -2.3%

-3.4% -4.0%

-4.4% -3.8% -3.7%

-4.1% -4.3%

-3.4%

-2.4%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

100

105

110

115

120

125

130

135

140

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Percen

t In

dex

(Ja

nu

ary

19

80

= 1

00

)

GDB Economic Activity Index

Value (Left Hand Side) Year over Year percentage change (Right Hand Side)

4

• The complete series of the EAI, which starts in January 1980, shows the recessions of FY1982 and FY1983, the

mild recession of FY1991, the recession of 2001, and the sharp but temporary effects of two hurricanes. It also

shows the path of the Index since the beginning of the current recession.

80

90

100

110

120

130

140

150

160Fe

b-8

0

Feb

-81

Feb

-82

Feb

-83

Feb

-84

Feb

-85

Feb

-86

Feb

-87

Feb

-88

Feb

-89

Feb

-90

Feb

-91

Feb

-92

Feb

-93

Feb

-94

Feb

-95

Feb

-96

Feb

-97

Feb

-98

Feb

-99

Feb

-00

Feb

-01

Feb

-02

Feb

-03

Feb

-04

Feb

-05

Feb

-06

Feb

-07

Feb

-08

Feb

-09

Feb

-10

Feb

-11

Feb

-12

Feb

-13

Feb

-14

Ind

ex

(Jan

uar

y 1

98

0 =

10

0)

GDB Economic Activity Index

Hurricane Hugo

Hurricane Georges

5

Total non-farm payroll employment for

February 2014 averaged 929,200, an

annual increase of 0.1%. During this

month, private employment increased by

1.5% y-o-y (10,300 jobs), while public

employment decreased by 3.7% y-o-y

(9,300 jobs).

Sources: BLS and PREPA

* Not seasonally adjusted.

GDB Economic Activity Index Components

Total Non-Farm Payroll Employment* (Thousands of jobs)

860

880

900

920

940

960

980

1,000

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

Feb-1

4

Feb-1

4

Electric power generation for February

2014 averaged 1,528.0 million kWh, an

annual decline of 2.2%.

Electric Power Generation (Millions of kWh)

0

500

1,000

1,500

2,000

2,500

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

6

Sources: PRHTA and GDB

* Not seasonally adjusted.

Cement Sales for February 2014 totaled

1.27 million bags, an annual decrease of

12.7%.

GDB Economic Activity Index Components

Cement Sales (Cement bags sold, in thousands)

1,000

1,200

1,400

1,600

1,800

2,000

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

Feb-1

4

Feb-1

4

The preliminary estimate of gasoline

consumption* for February 2014 was 80.5

million gallons, for an annual decrease of

6.4%.

Gasoline Consumption (Millions of gallons)

0

20

40

60

80

100

120

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

*The monthly gasoline consumption is estimated by the GDB from the Treasury Department's

monthly gasoline excise tax collections paid by importers which are transferred to P.R. Highways

and Transportation Authority.

Forthcoming changes

In order to further reduce the volatility of the Index, the Economic Analysis Division is

testing different seasonal adjustment procedures.

The change in the current seasonal adjustment procedure would allow more reasonable

month-over-month comparisons for the monthly observations of the index.

The selected seasonal adjustment procedure will be implemented in the April 2014

release.

7

The Economic Analysis Division is testing different seasonal adjustment

procedures which will be implemented in the April 2014 release.

8

Description of the

GDB-Economic Activity Index

9

Advantages of the GDB-EAI:

Readily available

Highly correlated to Puerto Rico’s real GNP

Reliable tool to monitor actual trend of Puerto Rico economy

The GDB-EAI is made up of 4 indicators:

Total Payroll Employment (Establishment Survey/ Thousand of employees)

Total Electric Power Generation (Millions of kWh)

Cement Sales (Millions of bags)

Gas Consumption (Millions of gallons)

GDB-EAI Highlights and Composition

GDB Economic Activity Index Highlights

10

The GDB-EAI is a coincident index for the economic activity of Puerto Rico. It is highly correlated

to Puerto Rico’s real GNP not only on the levels, but also on the annual growth rates.

This index was developed following the methodology similar to that used by The Conference Board

in their coincident index. This methodology follows a standard procedure to adjust the data for

seasonality and volatility factors.

Description of the GDB-EAI

Relationship on the levels: FY1981-FY2012

3,000

4,000

5,000

6,000

7,000

8,000

80

90

100

110

120

130

140

150

160

GN

P54

(Million o

f dollars

at

1954 p

rices)

GDBEAI (January 1980=100)

y = 49.495x – 408.29 R² = 0.9773

Real Gross National Product as a function of the

GDB Economic Activity Index

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-8% -6% -4% -2% 0% 2% 4% 6% 8%

GN

P54 A

nnual

Gro

wth

GDBEAI Annual Growth

Relationship on the growth rates: FY1982-FY2012

y = 0.7421x + 0.0062 R² = 0.8949

Sources: GDB

Appendix

11

Clarification about the interpretation of

the GDB-EAI figures

When it is annualized, the level of the EAI is highly correlated with the level of the

real GNP (with a Pearson correlation coefficient of 0.9886, for FY1981-FY2012).

The annual growth rates of both variables are also highly correlated (with a Pearson

correlation coefficient of 0.9508, for FY1982-FY2012).

Nevertheless, the annual growth rate of the EAI IS NOT the same as the annual growth

rate of the real GNP. Being highly correlated does not mean being equal.

In order to approximate real GNP growth from the EAI annual growth, we estimate a

linear regression model relating both variables.

Plugging in the EAI annual growth rates into the resulting equation we obtain estimates

for the annual growth rates of the real GNP.

This transformation generates an approximation of the actual real GNP growth figures.

12

The GDB-EAI is an indicator of the general economic activity, not a direct measurement of

the real GNP. Moreover, the GDB-EAI annual growth rates are not the same as the real GNP

growth rates, because the former are more volatile than the latter.

Clarification about the interpretation of

the GDB-EAI figures (2)

13

Here is a comparison of the annual growth rates of the GDB-EAI with the actual real GNP

figures. There are also estimates of the annual growth of the real GNP using the figures

coming from the GDB-EAI.

• Notice that the real GNP growth estimates

coming from the EAI are relatively close to the

actual real GNP growth figures.

Clarification about the interpretation of

the GDB-EAI figures (3)

14

Here is a comparison graph of the actual real GNP figures and the estimates of the annual

growth of the real GNP using the figures coming from the GDB-EAI.

15

The GDB-EAI and its indicators are subject to

revisions. While the information comprising the GDB EAI

has been obtained from sources GDB believes to be

reliable, GDB is not responsible for any errors or

omissions, or for the results obtained from the use of this

information.

Disclaimer